• Companies’ exit will pull over N5tr from stock market, shareholders warn
• Shareholders on verge of losing investments in multinationals
• Crisis raises fresh fear over delisting
As the crisis rocking Nigeria’s economy continues, retail investors, who are currently grappling with years of downturn and asset losses in the stock market, may forfeit their dividends in the next few years as listed companies battle what appears like an existential battle.
With combined losses of over N540 billion incurred by six multinational firms in their 2023 financial year, the firms may battle for a long period for stability.
With the economy still very deep in the market, intelligence suggests most of the affected companies would post losses in the current operation year. Even if they record gains, the companies have huge holes in last year’s operations to plug and may not bother about dividend payments until they fully recover from their losses.
The six firms including Nestle, MTN Nigeria, Nigerian Breweries (NB), Cadbury, Guinness and Dangote Sugar Refinery, an indigenous company, are among the most capitalised companies in the stock market. They were hitherto assumed to be immune from the vagaries of the overwhelming challenges.
The losses were due to foreign exchange loans they took from their parent company or international sources. These multinationals made sales in naira before converting to dollars to enable them to pay the interest on the loans and part of the principal. The more the Naira falls, the more Naira will be required to pay their dollar loans and due to the persistent surge in exchange rate, dollar liabilities exceed its assets.
A good number of shareholders have invested huge amounts of money, even their life savings in the firms due to their perceived good corporate governance principles and proven track records of dividend payment over the years.
Unfortunately, the lingering foreign exchange crisis has crippled shareholders’ investment in these firms, wiping out shareholders’ funds and turning it into negative positions, thereby hampering their ability to pay dividends and overall potential growth.
Negative shareholders’ funds mean that the company’s shareholders no longer have equity on paper and could need a substantial injection of equity to remain in effective control.
Operators have described the development as a huge disincentive to investment as shareholders may need to embark on an endless wait for dividend payout until companies recover from the losses suffered from the floating of the naira.
For investors, dividends are an important source of income. They provide a steady stream of cash flow, which can be particularly attractive for those seeking income stability.
President of NewDimension Shareholders Association of Nigeria, Patrick Ajudua, said most of the shareholders may likely move their investments to dividend-paying companies with potential for capital appreciation.
According to him, the losses have not only affected the financial viability of these firms but have threatened their going concern status resulting in liquidity and solvency problems.
He said investors currently have no assurance of the sustainability of their investment and therefore will move to other sectors. Ajudua pointed out that with the current trend, shareholders are doubtful of the continuity of these firms in the Nigerian market.
“Only when these companies are still in operation in Nigeria can you talk about dividends as most of them are now under Intensive Care Unit (ICU). As shareholders, we are disappointed with this policy that has resulted in loss and erosion of investment.
“The losses and the impact have caused excruciating pain to the staff and shareholders of these firms. The FX policy has resulted in job losses, rightsizing and delisting of companies.”
National coordinator of Progressive Shareholders Association, Boniface Okezie, said retail investors have lost huge amounts of money with dividend forfeiture because they invested a large chunk in these firms due to their policies of consistent dividend payout over the years.
He said the stock market would witness massive sell-off from retail investors to recoup their investment in other companies for sustenance as some of these retail shareholders are presently in a state of panic, considering the huge losses they have incurred from their investments in equities in the past.
According to him, shareholders depend on dividends from these highly capitalised firms to cater to their financial needs. Okezie said shareholders that have pressing needs may consider offloading some units of their holdings in these firms but added that the price may not be attractive because of the current low valuation of the stocks.
“Indeed, shareholders are in for hard times because, with the level of capital erosion, it will take courage and hard work on parts of these companies to bounce back. Till then, shareholders will have to sell some of their holdings to recoup their investment and make ends meet, this is not the time to hold strongly whatever you have, this is to sell.”
Nestle is the world’s largest food and beverage company with operations in over 190 countries and currently 15th most valuable stock on the Nigerian exchange with a market capitalisation of N713 billion, about 1.32 per cent of the overall market capitalisation.
Analysts believe that the cost efficiency it enjoys on the back of economies of scale from its wide range of products underpinned by its route to market and local input sourcing strategy.
However, the company recorded a Loss Before Tax (LBT) of N104 billion in its 2023 full-year operations, against Profit Before Tax (PBT) of N71 billion achieved in the corresponding period in 2022 and incurred a foreign exchange loss of N195 billion, which was the major reason for the loss position.
The forex losses also resulted in a wipeout of its shareholders’ funds, which currently stands at a negative N78 billion from N30.2 billion a year earlier. This means that the company’s liabilities now exceed its assets.
Similarly, MTN Nigeria Communications, currently the fifth most capitalised firm with N4.21 trillion capitalisation, representing 7.8 per cent of the equities market, recorded a loss after tax of N137 billion, its first loss since it was listed in 2019.
The company said the net loss for the year has resulted in the depletion of its retained earnings and shareholders’ fund to negative N208.0 billion and N40.8 billion respectively.
Consequently, it stated that the directors have decided not to recommend a final dividend payment due to the substantial currency devaluation and its repercussions on retained earnings for the period.
Nigerian Breweries, which is currently the 20th most valuable stock with a N334 billion market cap, constituting about 0.6 per cent of the stock market posted a net loss of N106 billion, after absorbing a foreign exchange (forex) loss of about N153 billion.
The company’s gross profit declined from N213.33 billion to N212.61 billion, even as operating profit slowed down from N51.76 billion to N43.96 billion.
Net finance cost, however, jumped from N34.42 billion to N189.19 billion, due largely to forex depreciation. This wiped off the group’s net profit of N13.19 billion in 2022 with a net loss of N106.31 billion in 2023.
Also, Cadbury Nigeria, 53rd most capitalised stock with N35.7 billion capitalisation reported a loss of N27.6 billion, representing a decline of 2,228 per cent from N1.30 billion pre-tax profit recorded in the previous year.
The company’s operating profit was wiped out on the back of realised and unrealised foreign exchange loss of N36.93 billion incurred during the period.
Guinness Nigeria with N112 billion market capitalisation posted a full-year loss of N18.2 billion, representing a 216 percent decline when compared to N15.651 billion profit achieved in 2022.
Its loss before tax was N22.138 billion as against profit before tax of N23.674 billion in 2022. Consequently, the loss erased N33.6 billion of the company’s shareholders’ funds, which fell from almost N90 billion to N56.4 billion.
A source close to The Guardian disclosed that some of the multinationals are contemplating closing their businesses, paying off shareholders and relocating to a more favourable environment. He pointed out that the capital erosion suffered by the firms is so massive that it will take several years for them to bounce back and resume payment of dividends.
Already, the stock market had lost about N130 billion from the exit of about four firms within eight months in 2023. Should the five multinationals toe the same path, the stock market stands a risk of losing over N5 trillion from its overall market capitalisation.
The Guardian also learnt that most companies, especially in the manufacturing sector may be forced to raise capital from the market through debt instruments or equity to shore up their working capital given the volume of losses reported.
However, while an equity option will largely depend on the interest and liquidity position of its shareholders, the debt option would compel companies to raise capital at rates much higher than the risk-free rate which would put pressure on the profitability of these companies due to the high interest rate environment.
Head Research, FSL Securities, Victor Chiazor said companies that require foreign exchange to operate will have to immediately introduce a hedging contract on their dollar borrowing and obligations to avoid such losses in the future.
According to him, those with parent companies overseas may request for inter-company loans to help moderate the impact of these losses on their operations.
He pointed out that the losses incurred by most of these manufacturing companies like Cadbury and Nestle Nigeria are so huge that it erodes their shareholders’ funds and will not permit any dividend payments as reserves have been wiped out.
Vice president of Highcap Securities, David Adonri, said it will take several years for the companies to recover from the loss.
“I will be very surprised if any investor entered those manufacturing companies in expectation of a dividend for the last year-end. Therefore, investors should patiently wait for the future when the companies will recover from their loss positions.
Head Equity, Planet Capital, Dr. Paul Uzum, said dividends will not be paid for at least two years, in the case of Nestle because their entire shareholders fund has been wiped off. “Though we think that earnings in 2024 and 2025 should have the capacity to close the gap that has been credited in their balance sheet.
“The likes of Flourmill, Dangsugar, Nestle, Cadbury, NB, International Breweries, and Guinness are affected because they have huge foreign exchange borrowing.
“Most of them will not pay dividends in 2024, and perhaps 2025. It has little impact on the general market because many investors already knew six months back that this was coming and were prepared for the worst. Nestle for example did not react to the bad news.”
